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Wednesday, March 07, 2007

"Eye Of The Storm"?

MarketWatch reports on currencies. "The yen rose against the dollar Wednesday, as traders continued to nervously eye developments in the stock markets after the week-long unwinding of yen carry trade positions. 'There is a nervous calm in the foreign exchange market,' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. 'The recent price action has sapped participant's confidence and many are not sure if the carry trade unwinding and asset market spasm is over.'"

"In New York trading, the dollar was quoted at 116.27 yen, compared with 116.53 yen late Tuesday. The euro stood at $1.3175, compared with $1.3121. The British pound traded at $1.9337, compared with $1.9313. The dollar changed hands at 1.2171 Swiss francs, compared with 1.2239 francs."

"David Brown, an analyst at Bear Stearns, said while the last few days have been 'quite sedate' and volatility has eased back down, it's premature to draw conclusions that the recent market turmoil has ended. 'Is this the end of the carry-trade rout or just the eye of the storm? We suspect it is the latter,' he said, in a note to clients. 'We believe that this decline in dollar/yen, which started in earnest a week ago, is likely to reach 110 before any sort of dust can really settle."

"'One thing to bear in mind here is that the mere drop in financial markets last week is likely to beget at least some bad economic news,' he said. 'We suspect that the market will latch onto any 'bad' news for dollar/yen, such as weak U.S. payrolls on Friday or more sub-prime tensions in the U.S., a lot more readily than it will react to 'good' news.'"

"Gold futures closed higher Wednesday to score a two-session gain of nearly $14 an ounce, finding support in a rebound in global stock markets and a broader recovery in commodity prices. Gold for April delivery closed up 1%, or $6.70, at $652.90 an ounce on the New York Mercantile Exchange."

"The contract has now climbed $13.70 in two sessions, after breaking a five-session losing streak that drew down prices by more than $50. 'We still believe we can see $700 in the first quarter of 2007 and expect gold to average $725 for the year, topping out at $825-$850 at some point,' Neal Ryan, director of economic research at Blanchard said."

"Contributing to gold's climb Wednesday, gold production in South Africa declined 7.5% in 2006 compared to a year earlier, recording its lowest level since 1922, the Chamber of Mines of South Africa said on Wednesday. South Africa is the largest producer of gold in the world."

"'We have seen similar reports from the United States, Australia, Canada and a few other countries throughout 2006 and should expect to see continued weakness in production from these countries,' said Ryan. 'More and more production will have to come from politically unstable, geologically more hostile regions as the four largest producers over the past three decades (Australia, Canada, South Africa and United States) continue an irreversible downtrend for annual production,' he said."

"Jon Nadler, an analyst at Kitco Bullion Dealers, said: 'Although a bullish fundamental component, the South African production data is currently offset, perhaps even overpowered, by questions about the demand side of the gold equation.'"

"'An apparently slowing U.S. economy, a strong whiff of stagflation in the air, and turbulent global stock markets have given the bears and the bulls a renewed chance at a fierce wrestling match,' Nadler said."

"Other metals prices finished higher along with gold, with the exception of platinum. April platinum lost $6.30 to close at $1,192.50 an ounce. May silver added 12 cents to close at $13.105 an ounce and June palladium tacked on $1.85 to end at $353.75 an ounce."

From Bloomberg. "New Zealand's central bank raised the benchmark interest rate a quarter-point to a record 7.5 percent and said it can't rule out another increase because an expanding economy may stoke inflation."

"'The current policy tightening is aimed at reducing the risk of an unsustainable rebound' in spending, Reserve Bank Governor Alan Bollard said in a statement released in Wellington today. 'Depending on the persistence of the current upturn, further tightening may be required.'"

"New Zealand's key rate is the second-highest after Iceland's among nations with the top credit rating at Moody's Investors Service, helping the currency surge 5.2 percent the past six months. Bollard today said a buoyant housing market and sustained consumer spending suggested inflation may exceed his 1 percent-to-3 percent target range unless rates were increased for the first time in 15 months."

"'The recent pick-up in housing and domestic demand may gain momentum,' Bollard said. 'A return to a moderating trend in housing and domestic demand will be essential is we are to see a reduction in medium-term inflation pressures.'"

From Reuters. "A popular investment strategy where investors borrow cheaply in yen to buy higher-yielding assets elsewhere can only continue for so long, former Federal Reserve Chairman Alan Greenspan said on Wednesday."

"The strategy, known as the yen carry trade, is still going strong, but 'at some point it's got to turn,' Greenspan told a trading technology conference."

"Japanese patriotism was partly behind the pattern, he said. Government debt is owned predominantly by domestic investors in Japan, despite offering some of the lowest rates in the world."

"'The people who are getting the carry trade spread are being subsidized by Japanese consumers,' Greenspan added."